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An upturn in EU wheat exports after a sluggish start to the season may hinge on a drop in the euro, success in Morocco’s upcoming import campaign and logistical limits to massive Russian shipments, analysts and traders said.
European Union exports of soft wheat, or common wheat, in the 2017/18 season that started in July are running nearly one-third behind last season’s pace, despite a bigger EU harvest.
The modest export performance is widely attributed to heavy flows from Russia after a record crop in the world’s top wheat exporter, and the upcoming Argentine harvest could add to competition on a wheat market brimming with stocks.
A strengthening in the euro has added pressure, making grain from Western European countries such as France more expensive in dollar-priced export markets.
The EU’s supply situation has played a part, with rain damage to Germany and Poland’s harvests reducing their surplus of bread wheat, while drought in Spain has led countries such as Romania to ship some wheat there rather than outside the EU.
EU exports typically accelerate from the middle of the season once cheaper rivals like Russia have offloaded the bulk of their supply and winter weather hampers logistics in the Black Sea region.
But Russian dominance at the start of 2017/18 has put the onus on the EU to achieve a bigger-than-usual winter revival.
For France, the EU’s biggest wheat grower, Russian competition has increased its reliance on Algeria and left analysts sceptical about farming agency FranceAgriMer’s forecast for 10.2 million tonnes in exports outside the EU.
Morocco’s move to bring forward by one month the start of its import window to Dec. 1 has offered some hope.
“French prices have become more competitive and they need to continue doing so,” Alexandre Boy of consultancy Agritel said. “France has a strong card to play in Morocco from December.”
Traders said there was talk sales of French wheat to Morocco had already been concluded, although they cautioned that Black Sea origins have gained market share in Morocco in recent years.
“France needs to find extra demand and sales to Morocco are a first step,” said Noel Fryer, analyst and publisher of Fryers Reports.
“But Morocco alone cannot fill the gap and there is much more work to do. And you have to bear in mind Russia’s capacity to lower its prices in response to this new French competition.”
France is unlikely to secure many sales in Egypt, the world’s largest wheat importer, where disputed inspection practices have deterred suppliers and reinforced the predominant role of Russia.
Export sentiment is more pessimistic in Germany, the EU’s second-largest wheat producer, after its rain-hit harvest and exports are seen mainly confined to some sub-Saharan markets.
“I cannot visualise an improvement in German wheat export prospects without a major fall in the euro,” one trader said.
“The rain-damaged crop is also reducing German export supplies, but this is also true in Poland, which suffered the same problem of late rain on its harvest this summer.”
Quality problems in Germany have shifted demand for high-protein wheat towards the Baltic states, whose combined exports outside the EU so far in 2017/18 are more than Germany’s.
Source: Reuters
(Reporting by Gus Trompiz and Valerie Parent in Paris and Michael Hogan in Hamburg; Editing by Dale Hudson)
